Howden: $1bn umbrella stop-loss mechanism would be “powerful COP28 legacy”

Industry entrepreneur David Howden has called for greater private sector involvement in pre-agreed financing in order to scale up loss and damage funding, and to cap losses in climate-vulnerable countries at 10 percent of their respective GDP.

Speaking at the COP28 summit in Dubai, the founder and CEO of Howden stressed the importance of a narrative shift: it is not that climate risks in vulnerable countries in the Global South are uninsurable, but rather that there does not exist allocation of premium at the required scale.

Although last year’s COP27 saw the landmark launch of the Loss and Damage (L&D) fund, broking group Howden recently engaged with the Cambridge Centre for Risk Studies to model the risks of climate-vulnerable nations and calculate how much premium would be required for protection.

“What was different about their research was that it looked at losses as a percentage of GDP,” Howden explained.

“The reason this is so important is because it shifts the focus to protecting countries, not buildings. Usually insurance protects the asset – the hotel, the home, the manufacturing plant. But what good is that if there are no schools, no healthcare and no ports to get products out?”

In some of the smallest countries, it was found that an extreme climate shock could cost more than 100 percent of GDP.

Howden added that in understanding the risk to the entire economy, the insurance industry can then calculate how much it would cost to introduce a contractual guarantee to pre-agreed finance.

“These are two sides of a very powerful coin: guaranteed, pre-agreed finance to respond when a disaster hits – or indeed even before – and the certainty needed to make vulnerable countries more investable,” he said.

According to the research, just $1bn – less than 1 percent of the targeted $100bn L&D fund – would secure around $75bn of protection, with this then scaled to protect all 100 L&D recipient countries from their highest-priority risks.

“This is the most economically powerful way to use donor money. It is entirely non-political and provides guaranteed funds that don’t rely on a disaster getting enough media attention,” Howden continued.

“In a world that is more volatile than ever, you can’t put a price on certainty. The poorest and most vulnerable have no safety net. For billions of people, if their home or land is wiped out, that means nowhere to live and no income.”

Howden concluded his speech that pre-arranged finance not only provides the opportunity to rebuild after a disaster has happened, but also provides families, communities, governments and investors with the confidence to invest in the future – by reducing vulnerability.

“If we do this now, we can transform the way we think about preparing and protecting the most vulnerable against the devastating effects of climate change and give everyone a chance to build a more resilient future. What a powerful COP28 legacy that would be,” he concluded.